US dollar bull run hits global dividend payouts

Strength in the U.S. dollar continues to weigh on dividend payouts, which fell around the world for a third consecutive quarter between April and June, new data from Henderson Global Investors showed.

Currency movements deducted 12 percentage points from the growth rate in dividends—the portion of a company's earnings that are paid out to shareholders—in the second quarter, said Henderson. This amounted to some $52.2 billion—the largest quarterly exchange rate effect on dividends that the investment company had ever recorded.

On average, dividends fell by 6.7 percent to around $405 billion in the second quarter of 2015 compared to the same period a year earlier, as the dollar surged against a number of major currencies.

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The euro, yen, Australian dollar and some emerging market currencies were all around one-fifth lower against the U.S. dollar during the second quarter compared to the same period in 2014. Sterling was down some 10 percent against the dollar.

However, Henderson said that underlying global growth in dividends—where special dividends, currency movements, changes in the index and timing of payments were stripped out—came in at an "impressive" 9 percent.

"Though the headline decline seems disappointing, it is concealing very positive underlying increases in dividends," said Alex Crooke, head of global equity income at Henderson.

"The strength of the U.S. dollar had a significant impact again this quarter, but our research shows that the effect of currency movements even out over time and investors adopting a longer-term approach should largely disregard them."

"The U.S. remains the undisputed engine of global dividend growth, but there are positive developments in many parts of the world, with Europe and Japan in particular doing increasingly well," said Cooke.

"The European economy is improving, while higher payout ratios from a historically low base are a key driving force in Japan and elsewhere."

U.S. companies raised headline income payments by 10 percent to $98.6 billion, with almost every sector increasing payouts. Dividends from the financial sector showed rapid growth, with Bank of America and Citigroup quintupling their distribution, Henderson said.

Henderson, which manages £82.1 billion ($128 billion) in assets and is headquartered in London, upgraded its forecast for underlying global dividend growth this year to 7.8 percent, up from 7.5 percent.

"As the economy in Europe continues to strengthen, so dividend growth is likely to accelerate too. Higher payout rations from a historically low base are a key driving force in Japan," Crooke said.